Rue21's CEO Discusses Q1 2012 Results - Earnings Call Transcript

rue21, Inc. (RUE)

Q1 2012 Earnings Call

May 24, 2012 4:30 p.m. ET

Executives

Bob Fisch - President and CEO

Kim Reynolds - SVP and General Merchandise Manager

Keith McDonough - SVP and CFO

Joe Teklits - ICR, Inc.

Analysts

Adrienne Tennant - Janney Montgomery

Brian Tunick – JPMorgan

Paul Lejuez - Nomura

Janet Kloppenburg - JJK Research

Erinn Murphy - Piper Jaffray

Lorraine Hutchinson - BofA Merrill Lynch

Presentation

Operator

Good day and welcome to the rue21 Incorporated first quarter fiscal 2012 earnings results conference. Today's call is being recorded. At this time, I would like to turn the conference over to Joe Teklits. Please go ahead.

Joe Teklits

Great, thanks. Good afternoon everyone and welcome to rue21's first quarter 2012 conference call. As the speakers today are Bob Fisch, Kim Reynolds, and Keith McDonough. And as a reminder, statements made during today's call will contain forward-looking information about our financial performance and prospects. And results could differ materially from those contained in our forward-looking statements.

Risks and uncertainties that could cause our business and financial results to differ materially from those in the forward-looking statements are included in our fiscal 2011 Form 10-K and in subsequent filings we have made with the SEC, as well as in the earnings press release we issued today. These documents can also be found on the Investor Relations section of our website at rue21.com. All information discussed on this call is as of today, May 24, , 2012. And the company undertakes no duty to update its information to reflect future events or circumstances.

And with that, I will turn the call over to Bob.

Bob Fisch

Thank you, Joe, and good afternoon everyone. Thanks for joining us on our call. I am going to keep my comments short and subtle today and then let you hear from Kim and Keith. On our last call, we indicated for the first quarter that we would achieve a low single digit comp increase, total sales growth in the mid to high teens and earnings per share in the range of $0.42 to $0.44. We were pleased to have reported today a 1.7% comp increase for the quarter, total sales growth of 19% and a 21% net income increase with earnings per share of $0.46.

The goal of our management team is to produce consistent and predictable profit growth for this company, each and every quarter. And I am very pleased that this quarter we achieved our growth goals just that we had for the last 10 years. This consistency does not happen by accident. It is a credit to our long term business model, the success we have had in small and middle market communities and the dedication and hard work from our entire team. Experienced, consistency and predictability. It is our secret sauce.

We had a very successful analyst day here in Pittsburgh in April and I enjoyed meeting with many of you in person. That day as we had on our last earnings call, we discussed three priorities for 2012: one, grow square footage; two, drive comparable store sales increases, and three, expand margins. The strategies we have built behind those priorities contributed to our results this past quarter and will continue to drive our results for the second quarter and beyond.

In terms of square footage growth, we opened 40 stores in the first quarter. The new stores had strong openings and we continue to see no resistance to reaching our goal of 1500 productive stores within the continental United States. My real estate team and I just came back from the real estate convention in Las Vegas, and we had great meetings with developers out there. And I feel as confident as ever that we are controlling occupancy costs while getting even better positioning in the shopping centers where we are opening up or relocating.

We continue to target value centers in small or mid-sized communities with a high-teen demographics but few competitors. And I will tell you I was happy that our flagship stores in London, Athens, Dublin and Paris, where in rural markets in the United States and not in Europe this quarter, because we are delivering strong sales in these under-appreciated markets. We plan to open 35 new stores during the second quarter and we will be converting four existing stores to our larger etc! format.

Turning to our goals of comparable store sales growth and margin expansion, we have achieved a 1.7% comp store sales increase during the first quarter on top of a 5.2% increase in fiscal 2011, and we did it without affecting our gross margin which remained flat on top of last year’s 100 basis point increase for the quarter. We accomplished this goal by staying true to our promotional plans and by investing in current trends like colored bottoms, casual dresses and activewear that were starting to ignite at the end of the fourth quarter. Our customer reacted favorably to our merchandise assortments especially with the great weather in March.

While sales were slightly tougher in April because of the Easter shift and some turn in weather, we maintained our pricing integrity and did not promote more aggressively than we had in prior quarters. We ended the first quarter with yet another increase in average unit retail.

I’d like to turn this focus now to the second quarter and the summer selling reason. As I discussed in prior calls, we are really excited about our powerful presentation of key items our customers want this season, like sandals, sundresses, skirts and shorts. These strong sellers would drive our business throughout the second quarter. We will break the mold of soft second quarter comps through the depth of our wear-now merchandise and the ability to balance our assortments between regular priced summer product and sale items.

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